Sramana Mitra: In terms of customer acquisition, what has been the driving narrative? What strategies worked for you?
David Menning: It really comes down to the discipline of how one runs the business and how one runs a marketing team. There’s discipline and then as a result of that, how you apply marketing efforts to different marketing channels. First and foremost, it really is the principle of how you actually apply the logic internally to analyzing the marketing channels and the marketing opportunities.
Let’s say you go sell a $100 product. You have 40% gross margin. If you want to be profitable and have 5% to 10%, you may want to spend maximum of about 9% to 10% on your marketing cost. That then allows you to be profitable. The logic is, you have a maximum of 8% to 10% that you can spend on marketing cost.
If you go in the marketing exercise with that basic understanding, the maximum amount of money you can spend is 10% of the product cost. You’re forced into a discipline of making it work. You’re simply forced to work out how to acquire that customer at that cost of sale. That’s what it all comes down to. With the luxury of financing, you get the luxury of saying, “I can spend the same price as the price of the good on marketing.” It really is quite easy isn’t it? You can just buy customers.
The true discipline in marketing is how to have that discipline and how to apply certain techniques to identify how to acquire those customers at a very low cost of sale.
Sramana Mitra: Very interesting.
David Menning: That’s what we’ve excelled in from the very beginning. We look at our marketing channels. We do a lot of work with our marketing. We follow best case lean startup methodologies. We try new marketing activities and then test it. Based on the success, we tweak it until we get the right cost of sale. If cost of sale is higher, we simply can’t spend that money. We simply wouldn’t be profitable.
Sramana Mitra: You have to be stringent on how you spend the money. In that process, what channels actually worked for you?
David Menning: In the early years, Google AdWords was the primary source. The tools and technology allow you to cap your spend. Also the more work you put into it, the more effective you can be. Google AdWords is still a very efficient marketing tool. Then, we used comparison shopping, email marketing, and affiliate marketing.
Sramana Mitra: Email marketing has become hotter these days because of the tremendous email overload.
David Menning: Email marketing is more suited to the existing customer base.
Sramana Mitra: If you look at the entire journey of going from zero to $50 million, what else, strategically, is interesting in your journey? What else did you do that is worth discussing?
David Menning: One of the key fundamental areas for our success was also our desire to hire and train a lot of young people. We have a very global workforce. We have people from more than 40 countries. I’m not saying they’re located in 40 countries. They’re mostly in our Hong Kong and Shanghai headquarters. We also have offices in Italy. The people that we hire represent a very mixed broad range of cultures.
These people bring many great insights into the business. Hiring different people has been very insightful and positive for us because we learn from them. It was challenging because different cultures mean that people have different expectations on how to work. With a global business, we’ve been able to instill a common core culture within the business. We ask people to prescribe to that culture. As team members they are able to develop skills in a quick and effective way. We treat our team members as equals. We give them amazing learning opportunities so they can learn and grow really fast.